Broke cities: What's next?

Local boards have guided cities in the past, but experts say there are other options

By Jimmy Vielkind

Published 10:23 pm, Sunday, August 19, 2012

Photo: Paul Taggart

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A welcome sign stands in Harrisburg, Pennsylvania, U.S., on Thursday, Dec. 15, 2011. The Harrisburg city council lost a bid to appeal dismissal of the city's bankruptcy petition as the judge in the case ruled a procedural step had come too late. Photographer: Paul Taggart/Bloomberg less

A welcome sign stands in Harrisburg, Pennsylvania, U.S., on Thursday, Dec. 15, 2011. The Harrisburg city council lost a bid to appeal dismissal of the city's bankruptcy petition as the judge in the case ruled a ... more

Photo: Paul Taggart

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TO GO WITH THE STORY BY Andrew BEATTY A picture made October 14, 2011 shows the Capitol Building in Pennsylvania's capital Harrisburg. Pennsylvania's state capital has filed for bankruptcy fuelling fears it is the first domino in a chain of municipal defaults, but Harrisburg's fate may have as much to do with politics as finance. AFP PHOTO/Mladen ANTONOV (Photo credit should read MLADEN ANTONOV/AFP/Getty Images) less

TO GO WITH THE STORY BY Andrew BEATTY A picture made October 14, 2011 shows the Capitol Building in Pennsylvania's capital Harrisburg. Pennsylvania's state capital has filed for bankruptcy fuelling fears it is ... more

Photo: MLADEN ANTONOV

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Assemblyman Richard Brodsky talks on his cellphone during an Assembly session at the Capitol in Albany, N.Y. June 7, 2010. (Lori Van Buren / Times Union archive)

Assemblyman Richard Brodsky talks on his cellphone during an Assembly session at the Capitol in Albany, N.Y. June 7, 2010. (Lori Van Buren / Times Union archive)

Photo: LORI VAN BUREN

Broke cities: What's next?

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Should New York let its cities declare bankruptcy? Or should it perhaps create a statewide control board, similar to entities that once shepherded New York City and Troy back from the fiscal brink, to handle a new round of financial distress?

The problems facing New York's municipalities are well-documented: Their population and tax bases have slowly eroded, but the double-whammy of a spike in pension costs and a drop in revenues after the 2008 stock market crash laid bare the persistent gaps between the money they can bring in and what they need to pay out to stay livable.

But fiscal experts and officials point to different items on a menu of options, including municipal bankruptcy — something that has happened to Harrisburg, Pa., as well as several California cities, but is unprecedented in New York.

"There are going to have to be cuts in services, there's no question, but the virtue of a bankruptcy is that all these services — everybody is eligible to take a haircut," said Richard Brodsky, a former Democratic assemblyman who is now a senior fellow at Demos, a progressive think tank.

In other cities, mayors have negotiated with public employee unions over salary and benefit levels, and with banks that have loaned the city money as they also considered tax hikes and service cuts. Brodsky stopped short of advocating the method, but noted bankruptcy keeps locally elected officials at the controls and ensures "the pain is being shared fairly and equally."

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However, bankers and credit rating agencies might react negatively and raise borrowing costs for localities around the state. Bankruptcy also creates an unhealthy perception that runs contrary to the "Open for Business" image Gov. Andrew Cuomo is pushing for the state.

No officials are openly preparing bankruptcy filings, though the mayor of Syracuse recently requested a legal briefing on the process.

Instead, the state's localities have turned to local fiscal control boards since the 1970s, when the Municipal Assistance Corp. nursed New York City from the brink of default to financial steadiness.

Similar boards have been imposed in Yonkers and Troy, and remain active in Erie and Nassau counties. Former Lt. Gov. Richard Ravitch, an architect of the Municipal Assistance Corp., said control boards are a useful "political tool" for local officials facing pressure over unpopular decisions like raising taxes or cutting services.

"It helps put discipline on local government, and/or it helps the local government have an excuse to do the things that have to be done," Ravitch said.

Despite dire near-term financial outlooks, there are no pending requests to create more control boards, which require an act of the state Legislature.

George Marlin, a fiscally conservative columnist and banker who sits on Nassau County's control board, called for state officials to create a single state-level board that could automatically dive into troubled localities.

"The superboard should be a board of wise men who have great experience in these matters. ... Maybe the governor is the chairman, the comptroller is on it," said Marlin.

Without that sort of high-altitude leadership, "my fear is that you could suddenly wind up with a bunch of local guys who are not there for the right reason, and go along with the municipality who look for different ways to kick the can down the road," he said.

From a political standpoint, it would give Cuomo an opportunity to take on a looming crisis and reap glory if it was successfully solved. But it also has the potential to pit the governor against local officials or labor unions forced to accept reductions in salaries and benefits.

Indeed, several mayors around the state bristled at the superboard concept, floated recently in the New York Post, and state officials including Comptroller Tom DiNapoli have balked at endorsing it.

Larry Schwartz, Cuomo's top aide, didn't mention a superboard during an interview with the Times Union. While there are common forces in play, he said, each municipality's financial stresses are unique.

"Gov. Cuomo is working on fiscally responsible ideas, as he has done with the state budget, that protect taxpayers, but also helps out those municipalities who might be in dire fiscal straits," he said. "With each one, we have to identify what sort of fiscally responsible reform will work not only on a short-term basis, but also over the long term, in order to prevent them from coming back for assistance year after year."

This might mean more control boards. The Cuomo administration has already made it clear it frowns on deficit borrowing — Rockland and Nassau counties each attempted to float bonds last year, but both attempts stalled in the Legislature — without accompanying reforms, and Schwartz said that disdain also extends to "spin-ups" of state aid.

Cities such as Rochester, Syracuse and Albany relied on such spin-ups, where aid promised in future years is redirected to the present, to close their 2012-13 budgets. Schwartz said the administration insists the infusions are accompanied by multiyear plans for saving money, and could use the spin-ups as leverage to push municipalities to settle contracts with local unions or consolidate services with their neighbors.

Cuomo has already pushed through "mandate relief" policies designed to lower localities' costs, including a reduction of pension benefits for new employees and a gradual freeze in counties' share of Medicaid costs. Municipal groups insist more must be done, especially in light of a 2 percent cap on local property tax increases. They're hoping lawmakers will change the provision of state law that keeps contracts in place for unionized workers even after they expire, including automatic pay increases.

"The best option is to empower the local control boards we already have: the local government that was elected," said Peter Baynes, executive director of the New York Conference of Mayors. "But they don't have sufficient power to manage their workforce costs, and what we've seen in municipalities is that this lack of power leads to such a problem that the state has to come in with a control board."